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Did the Card Act Make it Harder for Millennials to Open Credit Cards?

Did the Card Act Make it Harder for Millennials to Open Credit Cards?
Posted: Nov 9, 2017
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A recent CNN Money article, Millennials Aren’t Opening Credit Cards. That’s a Mistake, caught my eye.   While the article does talk about the benefits for Millennials to open a credit card such as building a credit score, earning rewards, and fraud protection, it also mentions that the Card Act made it harder for Millennials to open credit cards.  The Card Act didn’t make it harder for Millennials (or other generations) to open credit cards, issuers did by their interpretation of the Card Act requirement of “proof of ability to pay”. 

Prior to the Card Act, it was not the intent of an issuer to recklessly open credit card accounts with individuals who didn’t have the financial means to repay the debt they may carry on a credit card.  This type of underwriting would only lead to delinquencies and charge-offs. However, some issuers may have been more aggressive than others with their risk models prior to the Card Act, but in the end, it’s about acquiring profitable accounts and the risk an issuer will take in order to acquire the account. Issuers who are now requiring a copy of a pay stub to establish proof of ability to pay are over interpreting the Card Act language. Nowhere in the Card Act does it define what proof of ability to pay is, leaving it up to issuers to define and for their examiners to accept.

“Consumer protection laws passed after the crisis also contribute to the generational gap. The Card Act of 2009 makes it harder for Millennials to qualify for a credit card unless they can prove they have enough income to pay it back”. Source:  CNN Money

Less than a third of Millennials say they have a credit card, while more than half of people age 30-49 own one and nearly 70% of people over 65 do, according to the 2016 Bankrate survey. Financial experts say it's the fear of debt that explains why young people are shying away from credit (Source: CNN Money). 

Issuers unintentionally create additional roadblocks to acquire credit cards with Millennials by the way they market and sell credit cards by leading with low rates thinking consumers will see that a great low rate is the best card to open. We know Millennials are credit card averse and prefer debit cards, perhaps as a residual effect from the Recession and overhearing their parent’s ‘kitchen talk’ of credit card debt woes. So, stop leading credit card marketing messages by promoting low rates.  Rate messages infer debt, and Millennials are debt averse. While some credit cardholders may revolve a balance, not all do and it’s a mistake issuers make by promoting rates before promoting credit card benefits and features in an attempt to acquire an account. Consider marketing credit cards to Millennials similarly to how Uber is promoting their recently announced credit card by leading with benefits and features that are beneficial and appealing to the prospective cardholder.

Millennials are the most educated generation in history, however, they need help with basic everyday activities according to a recent Wall Street Journal article “America’s Retailers Have a New Target Customer:  The 26-Year Old Millennial.” The author of the article, Ellen Byron explores how living through the recession, student loans and different childhoods than their parents, created a generation bigger than any other, and is pushing companies to revamp marketing and products, including remedial education.

 

While it might seem humorous that Millennials need help understanding how to use a washing machine or a landline phone, it’s a glaring indication that Millennials also need help understanding financial products and services including credit cards.  Credit card issuers need to speak to this generation in a tone that helps them fully understand the benefits and features of credit cards, not just about the debt they may incur if they carry a balance.  In the 2017 Health of Cash Study, Millennials indicate cash is their most preferred payment method, while credit card preference is 17% (Source: Cardtronics).

If Millennials don’t know how to use a washing machine or understand what a dial tone is on a landline phone, how can an issuer expect them to understand credit cards, why they need one, and how to qualify for one? Are you talking to Millennials in the same tone you talk to Baby Boomers? Their needs and opinions are very different, and issuer messages should be different as well when promoting credit cards.  Credit cards are safer than cash to carry and use, however, 70% of Millennials feel nervous when they don’t have cash in their wallets (Source:  Health of Cash Study).

As 2017 winds down and we look ahead to 2018, credit unions need to prepare for the projected future spend growth the Millennial generation will produce.  Millennials will dominate payments by 2020 and are projected to be the largest generation by aggregate income by 2020, driving 30% of total consumer spend (Source:  Visa). 

Identifying internal barriers credit unions have that prevent Millennials from opening credit cards and implementing Card Act compliant changes to remove them, will be crucial to future credit card portfolio growth as the Millennial generation income grows as well as their spending power.

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Stephanie  Hainje

Stephanie HainjeStephanie Hainje

CSCU Senior Portfolio Consultant Stephanie Hainje is an experienced card industry professional with credit and debit card program management from her previous career at Purdue Federal Credit Union, a leading affinity credit card issuer and top 100 Visa USA issuer.

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